Here are some bar examination questions for you. Not a real ones. I made them up. (Okay, they're a real questions. With real answers. But as far as I know, they're not on the Bar.) See if you can get them all correct:
P is injured by D. P goes to the hospital, which bills P $50,000 for the medical services it renders. P sues D, and the jury finds that D is entirely responsible for the medical expenses incurred by P. No other damages are alleged or sought.
Question (1): Assume that P has heath insurance and that P's insurance company pays the hospital $50,000 in full satisfaction of the debt. P's out-of-pocket losses are thus $0. Given these facts, P will be entitled to how much at trial?
Question (2): Assume that P has health insurance and that P's insurance company pays the hospital $30,000 in full satisfaction of the debt. P's out-of pocket losses are thus $0. Given these facts, P will be entitled how much at trial?
Question (3) Assume that P has no health insurance, but that she is able to negotiate with the hospital, which accepts $25,000 from P as full payment for the medical services it provided. Given these facts, P will be entitled to how much at trial?
(C) It depends on whether the negotiation took place before or after trial.
Got your answers?
I hope you got (1) right. The correct answer is (A). That's the collateral source rule. Could even be on the Bar.
Question (2) is more difficult. The Court of Appeal holds here that the answer is (B). But that seems troubling to me. Not necessarily wrong, but maybe wrong, particularly for what such a holding would mean for Question (3). A similar issue is currently pending before the Califonria Supreme Court in Howell. Seems to me like the Court of Appeal might have wanted to hold the present case pending Howell rather than reasoning from first principles and incurring transaction costs to both the judiciary as well as the parties.
Question (3) seems the toughest. The collateral source rule suggests that the right answer is (A). The Court of Appeal's decision seems to suggest that the right answer is (B). But under the Court of Appeal's decision, in practice, the correct answer is probably (C). Since if the negotiation is before trial, we know that the losses are only $25,000, so (as here) the recovery should only be this same amount, since the hospital was willing to accept this amount in full satisfaction. Just like with insurance. But if the negotiation is after trial, there's been no deal yet, so P gets $50,000. In which case (C) is the right answer. Moreover, it suggests that what we should instruct the jury at trial is not to decide how much the hospital billed, but "What is the amount that you find that P will likely have to pay as a result of this bill? Will she be able to settle the bill for a lesser amount? How good of a negotiator is she?" Which in turn seems silly.
Did you get all the answers right?
They're tough questions. Even for those of us that have been in practice for a while. They don't seem quite fair. Even for a bar examination like California's that's the toughest in the nation.
We'll see how the California Supreme Court answers Question (2) shortly. But for now, it's (B). And if the Supreme Court agrees, I hope it has the guts to answer Question (3) as well.